By the due date assigned, submit your answers for two scenarios to this Discussion Area. Start reviewing and responding to your classmates as early in the week as possible. You should review and critique the work of other students as outlined in the expanded rubric by the end of the week .
Select two of the scenarios listed below and explain the best solution for each. Include comments related to any ethical issues that arise. You should locate at least one scholarly source from the SUO Library or one case that has been decided or is currently pending to support your answer.
Scenario 1 – Sole Proprietorship
Ben Davis was a sole proprietor of a heating and air conditioning company doing business as (d.b.a.) Net Zero. Net Zero was in the business of selling, installing and servicing heating and air conditioning systems. Ira Simmons, a building owner, contracted with Davis to install a new air conditioning system for an office building he owned. Net Zero installed the unit and provided a warranty that the unit would not malfunction for 5 years. Two years later, Davis died and his son, Dean Davis, inherited his father’s business… Dean also ran the business as a sole proprietorship d.b.a. Net Zero. One year later, the air conditioning unit installed in Simmons’ building broke and could not be repaired. Simmons demanded that Dean honor the warranty and replace the unit. When Dean refused to do so, Simmons had the unit replaced at a cost of $12,000 and sued Dean to recover this amount for breach of warranty. Dean Davis argued that he was a sole proprietor and as such, he was not liable for the business obligations his father incurred while operating his own sole proprietorship.
- Is Dean Davis liable for the warranty made by his father? Support your answer with material from the readings and/or the applicable law.
Scenario 2 – Business Organizations
Ronnie Paulson operates a home improvement business and leasing business, which includes purchasing distressed properties, fixing the homes up and renting them out. During the recession, Ronnie purchased six homes that were in foreclosure and hired one full time employee to help him with the business. The homes are financed with six different banks. Two years ago, Ronnie stopped paying the mortgages on the homes and placed the rental monies in various bank accounts that were not in his name.
Ronnie and his wife. Adrienne, own a home, in which they have a reasonable amount of equity. Adrienne manages the books and other accounting responsibilities for the business.
- Evaluate three types of business organizations that might be suitable for Ronnie’s business.
- Select the best type and explain the advantages and disadvantages of your selection and why your answer is best based upon the applicable law.
Scenario 3 – Corporate Formation and Shareholder Liability
Sylvia Garrison, a well-known local entrepreneur, owned several businesses that filed for bankruptcy from 2008 to 2014. Last year, Sylvia established S.G. Properties, Inc. Garrison is the sole shareholder and invested $3,500 in the company as a capital contribution. S.G. Properties, Inc. purchased 5 houses using a $750,000 loan obtained from the bank. Garrison planned to fix up the homes a little and give renters a break on the rent if they agreed to do some repairs. S.G. Properties skipped several mortgage payments on the houses even though her tenants paid the rent. S.G Properties is no longer able to pay its bills. As one of S.G. Properties’ creditors, you seek to hold Garrison personally liable for the debts of the company.
- Will you be successful in holding Garrison responsible for the company’s debts? Explain why or why not.
Scenario 4 – Forms of Business Organizations
Scotty has been operating his lawn care business as a sole proprietorship in Florida. Business increased to the point where Scotty hired Dale to help him and is considering more expansion opportunities. However, Scotty has been attending college to study accounting and is considering the option of cutting back on his landscaping responsibilities when he graduates to take on a full time job in accounting. Scotty could still manage the financial affairs of the business from a nice air-conditioned office while Dale and perhaps a new employee worked outside in the heat.
Dale has a friend who just moved to Florida and needs a job, so he suggests that Scotty hire him as a part time employee.
- How would you advise Scotty when he comes to you for advice about the best type of business organization for his growing landscaping business? Explain your reasoning.
- Consider at least one limited liability option in your response, such as the LLC or LLP.